By Siddhant Sharma, Amity Law School, Jaipur.
The concept of Corporate Social Responsibility (CSR) has been around for quite some time now. The term itself means ‘corporate initiatives to assess and take responsibility for the company’s effects on the environment and impact on social welfare’. CSR may also be referred to as “corporate citizenship” and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.[i]
The 21st century has been an era of unprecedented growth and opportunities for major economies around the globe. But globalisation has also given rise to a desire of inclusive development. Businessmen have understood that in order to attain long term success, sustainability and emerge as strong competitors, social and ethical responsibilities should be integrated into the governance of the business. They have understood that creating the image of a CSR effective company will help them achieve long term substantial growth thus creating product preferentiality and loyalty amongst the customers. The topic was first introduced academically by HR Bowen in the year 1953 and since then has been debated all over the world about its concepts and implantations.[ii]
SOCIAL INITIATIVES: PRIOR to 1950
We know that every major detailed content and argument about CSR began to take form in the mid and late 20th century, i.e., during the 1950s. But practices related to social upliftment had started in the mid to late 1800s. The first traces of improving employee productivity and philanthropy can be found during this time when there emerged an industrial betterment movement in Great Britain and America. During the industrial revolution employers were concerned about how to increase employee productivity by fulfilling their needs and making them better members of the society. The factory system which was a result of the industrial revolution was being criticised for creating widespread social problems like poverty/slums and women/chid labour. It was then when industrialists like John H. Patterson set the course of an industrial welfare movement. His scheme focused on preventing labour issues and increase employee productivity by providing for practices like: bath houses, clinics, lunch rooms, profit sharing etc.[iii] Also, business leaders like Cornelius Vanderbilt and John D. Rockefeller were emerging as individual philanthropies. They were active contributors to community services and provided funds for building churches, education institutions and other community projects. Companies were also showcasing social sensitivity by providing assistance to social agencies. For example, the R.H. Macy Company of New York contributed funds towards orphan asylums and gifts to charities which were showed in the miscellaneous expenses in the company’s books. But in the late 1800s, charters of incorporation, which was only applied to socially useful businesses was now available for business under any pretext and were near impossible to revoke. This created monopolies by concentrating powers in the hands of few. Soon the stakeholders were cheated and the rules of market pricing were defied. This period was obviously followed by massive business failure resulting in mass unemployment and ultimately the great depression. This phase was termed by economists as the ‘profit maximizing period’. The next phase started in the early 1900s and was termed as the ‘trusteeship management’ ushered in by Phase I. In this period, corporate managers took responsibility to create a balance between maximizing wealth and claims from customers, employees and society. Sophie Muirhead has considered this period as the ‘prelegalization period’ of corporate contributions playing a central role in the development of modern CSR.[iv]
POST 1950s: THE MODERN ERA OF SOCIAL RESPONSIBILITY
The first publication of this era, ‘Social Responsibilities of the Businessman’ by Howard R. Bowen in 1953 is considered to be the beginning of this period. Bowen described social responsibilities of businessmen as ‘their obligations to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society’.
Literature on CSR expanded in 1960’s and 1970’s. Keith Davis was extensively writing on CSR in the 1960’s. His set forth his famous ‘Iron law of Responsibility’ which stated that ‘social responsibility of businessmen should correspond with social their power’ which implies that if social responsibility is avoided it leads to gradual erosion in social power. This view was commonly accepted in the 1970’s and 1980’s.
During the 1970’s writers like Morrell Healed and Harold Johnson extended the literature on this subject with their respective publications: The Social Responsibilities of Business: Company and Community, 1900-1960 and Business in Contemporary Society: Framework and Issues. Johnson in particular had a four point description of social responsibility-
- He coined the term ‘Conventional Wisdom’ and defined a responsible firm as one which focuses on the multiplicity of interests and not just profit hungry.
- He then perceived social responsibility a tool to achieve ‘long term profit maximization’.
- His third view of socially responsible meant that prime motivation of business is ‘utility maximization’.
- He finally explained a fourth view, which he called the ‘lexicographic view of social responsibility’. According to which the goals of the enterprise are ranked in order of importance and that targets are assessed for each goal. But the most important thing is the firm’s past experience in achieving these goals.[v]
During the 1990’s the criticism regarding corporate activities started. Corporate scandals caused by global corporations occurred. The rise of sweatshops and child labour led to protest against corporations by civil group activists. Various NGO’s, trade unions and human rights organisations demanded higher degree of social responsibility which forced such corporations to respond, giving rise to corporate social responsibility programmes.[vi]
The 21st century has focused on implementation of CSR initiatives. This attention not only by businesses but governments likewise is a direct impact of recent corporate failures like the Enron, Union Carbide and the collapse of giants like Arthur Anderson etc.[vii]
CSR ACTIVITIES IN INDIA–
There have been CSR activities in India by corporate giants like Infosys and TCS etc but unfortunately the number is very less considering that India has the largest number of listed companies in the world (with 5191 companies in 2014-2014).[viii] Getting inspired by international examples the Government of India implemented the concept of CSR in the new Companies Act 2013. The rules for CSR spending have been mentioned u/s 135 of the New Companies Act 2013 along with Companies (Corporate Social Responsibility Policy) Rules, 2014 which has made CSR from voluntary activities to mandatory responsibilities.
Company (includes foreign company with branches or project in India) having:
- Minimum net worth of rupees 500 Crore,
- Turnover up to 1000 Crore or
- Net profit of at least 5crore, during any financial year will have to spend 2% of their earnings on CSR activities.
Also the companies are also required to constitute a Corporate Social Responsibility Committee as follows:
- The Committee shall consist of minimum three directors including one Independent Director, however in case of Private Company or the Company, which is not required to appoint Independent Director on board, or Foreign Company the committee can be formulated with two directors.
- The CSR Policy shall be formulated in accordance with Schedule VII and the CSR Committee will be responsible for framing the policy, finalizing the amount to be spent on CSR, monitoring & implementation of the Scheme.
- If Company ceases to fulfill the eligibility criteria for three consecutive years, then the company is not required to comply until the company will meet the eligibility criteria once again.[ix]
It is clear from CSR trends and practices that social responsibility has both an ethical or moral component as well as a business component. In today’s world of intense global competition, it is clear that CSR can be sustainable only so long as it continues to add value to corporate success. It must be observed, however, that it is society, or the public, that plays an increasing role in what constitutes business success, not just business executives alone, and for that reason, CSR has an upbeat future in the global business arena. The pressures of global competition will continue to intensify however, and this will dictate that the ‘business case’ for CSR will always be at the centre of attention.
[i] Investopedia Definition of corporate social responsibility [Online] Available From: http://www.investopedia.com/terms/c/corp-social-responsibility.asp
[ii] Dr. Jayanthi, A and Chandrasekar (2014) Corporate Social Responsibility – Issues and Challenges in India International Journal of scientific research and management p25-32 [Online] Available From: https://amizone.net/AdminAmizone/WebForms/SessionPlans/SessionPlans/abb185%20ijsrm.Pdf
[iii] Carroll, A.B. (2004) a history of Corporate Social Responsibility- concepts and practices Perspectives on Corporate Social Responsibility pp. 20-45 Ashgate.
[v] Carroll, A.B. (1999) Corporate Social Responsibility: Evolution of a Definitional Construct BUSINESS & SOCIETY (v. 38, no. 3) p.268-295 [Online] Available From: file:///C:/Users/hp/Desktop/property%20law/CSR_Evolution_1999-libre.pdf
[vi] Broomhill, R. (2007) Corporate Social Responsibility: Key Issues and Debates Dunstan papers p. 10-11 [online] available from: http://www.dunstan.org.au/resources/publications/Dunstan_Papers_No_1_2007.pdf
[vii] Crowther, D. and Martinez, E. (2004) Corporate social responsibility: history and principles Ansted University Press p.102-107 [online] available from: http://www.davideacrowther.com/csrmodule/csrreading3b.pdf
[viii] Listed domestic companies, Standard & Poor’s, Global Stock Markets Factbook and supplemental S&P data [online] available form: http://data.worldbank.org/indicator/CM.MKT.LDOM.NO
[ix] Goyal, H. and Aggarwal, S. ( 25 March 2014) Corporate Social Responsibility As Per New Indian Companies Act 2013 Global Jurix, Advocates & Solicitors [online] available from: http://www.mondaq.com/india/x/302204/Corporate+Commercial+Law/Corporate+Social+Responsibility+Now+A+Mandated+Responsibility